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USTaxAdvising
USTaxAdvising, Accountant
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Is it possible to gift my vested NSO stock options expiring

Customer Question

Is it possible to gift my vested NSO stock options expiring in August and in the money, to my 21 year college going son, to avoid taxes on my part and let him cash them out in his account after the transfer to gain lower tax treatment. If true what are the steps and do I need a CPA or someone to assist me.
Submitted: 1 year ago.
Category: Finance
Expert:  USTaxAdvising replied 1 year ago.

USTaxAdvising :

Somewhat yes this is possible but I don't like the term "avoid taxes," it sounds somewhat illegal. I think a better term would be tax strategy....

USTaxAdvising :

Basically you can gift up to 14,000 of property to you son tax free. If you are married then you spouse can also gift up to 14,000.

USTaxAdvising :

The stock options would be transferred at the fair market value "FMV" not your original basis.

USTaxAdvising :

Anything in excess of 14,000 would be subject to the gift tax. BUT, you can elect to have the gift apply to your annual lifetime annual exclusion which is currectly set at 5.25M and the gift tax would not apply but you would still need to file a gift tax return Form 706 to elect to use your exclusion.

USTaxAdvising :

Basically estate and gift taxes go hand in hand. You are allowed a 5.25M FMV of assets "liftetime exclusion" at time of death before the estate tax applies. If you have gifted during the year and applied those gifts against your exclusion the 5.25M then your estate would only be shielded by 5.25M less the amounts gifted.

USTaxAdvising :

Alternatively, if you could manage to transfer the options to your son and then have him immediately liquidate the positions to cash and transfer the proceeds to the college. Gift taxes do not apply to payments made for someone's educational tuition. This might be somewhat tricky though as the IRS may view the transfer of the options before sale as a "gift" and not a "payment to an educational institution." I think the best thing to do here is to document in writing with a notary signature the intent of all the transactions. Then it would be hard for the IRS to make a position against you regarding the intent of the funds.

USTaxAdvising :

I don't think you would need a CPA or someone to assist you but if we are talking about an amount over 14K it might be worthwhile get a formal opinion on the transaction to ensure it is done correctly. It might cost you a couple of hundred bucks but at least your tax on the gift would be NIL.

USTaxAdvising :

I trust this provides the clarity you were looking for. If it does not please feel free to ask further questions.

USTaxAdvising :

Best regards,

USTaxAdvising, Accountant
Category: Finance
Satisfied Customers: 1111
Experience: Professional with finance related questions.
USTaxAdvising and 3 other Finance Specialists are ready to help you
Expert:  USTaxAdvising replied 1 year ago.
Hello Ram,

This is odd. I answered your question and then when it went to post another expert had shown as posted so my post never went through.

Please let me know if you are still waiting for an answer and I will repost.

Sorry for the inconvenience.

Best regards
Customer: replied 1 year ago.

Thanks. So basically if my cost basis is 10 and current FMV is 50. I pay income tax on 40? The advantage of the gift is that any further gain above 40 will be taxed at my son,s rate? Correct?


 


 


 


 


 


 

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